Working Capital Financing for MSMEs Through Digital Innovation: Participation-Efficiency Interdependence on India's Trade Receivables Discounting System (TReDS) Platforms (Research Square)

Summary

• In India, MSMEs contribute nearly 30% of national GDP, over 40% of exports, and provide employment to over 265 million individuals.p.2
• Delayed payments to MSMEs in India are estimated to total INR 10.7 lakh crore, with micro and small enterprises bearing 80% of this financial burden.p.3
• The empirical study evaluates monthly data across all 5 RBI-authorised TReDS platforms spanning from April 2022 to June 2026.p.2

Key insights

1. Financing efficiency on TReDS platforms demonstrates strong month-on-month persistence, indicating that operational performance momentum is carried forward over time.p.16
2. Surges in same-month MSME seller onboarding significantly boost immediate financing efficiency but lead to a partial efficiency pull-back in the subsequent month.p.16
3. Growth in financier registration impacts financing efficiency after a short one-month onboarding lag, reflecting the time required for banks and NBFCs to initiate active bidding.p.17
4. Growth in buyer registrations does not directly drive MSME seller onboarding in multivariate models, operating instead indirectly by raising platform financing efficiency.p.16
5. Two-stage least squares (2SLS) robustness checks confirm that the positive effect of financing efficiency on MSME seller onboarding is robust against potential simultaneity bias.p.19
6. TReDS transaction records can potentially serve as verifiable indicators of working capital discipline for merchant bankers conducting SME IPO due diligence.p.22
7. Allowing SEBI-regulated Alternative Investment Funds (AIFs) to bid as financiers on TReDS platforms could deepen the liquidity pool and lower financing costs for MSMEs.p.22